Austerity regime can reduce budget deficit

Top government officials in Kenya have the notoriety of disregarding well-meaning austerity measures and other actions taken by the State to cut back on expenditure to curb the surging budget deficit.

However, with revenues shrinking and government running out of room to borrow more to fund an expensive budget, Treasury appears tucked between a rock and a hard place and thinking of tough austerity measures.

National Treasury says at the moment, the government needs to pay more than Sh800 billion it borrowed from commercial financial institutions among many other crippling financial demands.

Also demanding their share of the pie are county governments, Members of the County Assemblies (MCAs), staff in public universities and health sector amongothers.

Appearing before the Senate Finance and Budget Committee early this year, National Treasury Henry Rotich was unable to hide his unhappiness with the current state of affairs.

“If you were to tell us to disburse 100 per cent, the Judiciary, Executive and Parliament also want their full share and I can’t get the revenues and you do not want me to touch borrowing, it is impossible. I mean something must give,” he said.

Rotich wanted senators to reduce county budgets by up to Sh18 billion as he prepared a second supplementary budget targeting national budget cuts of up to Sh60 billion. The Committee wanted to know why Treasury had not released money to counties.

Austerity measures to cut down government expenditure were first introduced during retired President Mwai Kibaki’s tenure, when President Uhuru Kenyatta was Finance Minister. Uhuru was the first Finance Minister who nearly ended the culture of fuel guzzlers by putting a 1,800 cc cap on the type of vehicles given to ministers, permanent secretaries and other senior officials.

He tried to implement some austerity measures at the Treasury, albeit with limited success. He suggested that ministers and high ranking officials downgrade to vehicles with lower engine capacities and mooted the idea that parliamentarians should pay tax.

That is when he introduced the Volkswagen (VW) Passat saloon cars with a less than 2,000 cc engine capacity to replace the then government expensive fuel guzzling official limousines for cabinet ministers and high ranking government officials.

Most of them which were Mercedes Benzes, Range Rovers, Volvos and Toyota Prados were supposed to be grounded and auctioned to buyers whose proceeds were supposed to go to the National Treasury to fund government expenditures.

However, a few years down the road all that had been scattered to the four winds as the Passats were forgotten and the fuel guzzlers came back into action with full force, thereby completely negating the austerity intentions.

The government is the biggest spender anywhere in the world. But with revenues shrinking and running out of room to borrow more, Treasury is back on the tough austerity measures path.

Speaking to the Senators, Rotich said the National Treasury had resolved to cut the budget by more than Sh 80 billion for the first time as ambitious tax targets fall below expectations. Though last year’s budget estimates hit the Sh2.8 trillion mark, this year’s budget is planned to hit more than Sh3 trillion mark, a development that will send many Kenyans worrying.

Economic experts see debt as cycles where you get a boom when the money comes in but a rough patch when you have to pay, a pain Treasury has been avoiding as it took more loans to pay older loans rather than rely on organically generated revenue.

As at the beginning of this year, the government projected that it could raise Sh1.7 trillion towards funding the Sh2.2 trillion expenditure.

Kenya Revenue Authority (KRA) was to collect Sh1.5 trillion while ministries, departments and agencies were to collect Sh156 billion in a kitty referred to as Appropriations-in-Aid.